Preventing overseas workers coming to the UK after Brexit will lead to more outsourcing and higher automation instead of higher wages for British workers, a report has suggested.

Deutsche Bank has claimed that Brexiteers’ narrative of more and higher paid jobs for British people, especially in low-skilled sectors such as domestic workers, ignores some ‘important considerations’.

It said that curbs to immigration will cause a ‘labour market supply shock’, but companies won’t pay their workers more and are likely to turn to technology and outsourcing to fill the labour void left by immigrants.

Britain's Foreign Secretary Boris Johnson gestures as he looks at a humanoid robot

Share this article

Deutsche Bank said that, even in the best-case scenario, labour shortages could push up productivity, but that is not necessarily a boon for workers, it said.

The report brought Japan as an example, where workers have seen their hours reduced rather than their pay hiked.

Deutsche Bank also argued that algorithms could be used to replace workers in customer service as well as administrative and secretarial roles.

In the worst case scenario, UK firms will avoid higher costs at home by outsourcing their operations to overseas, cheaper countries, according to the report.

‘Companies faced by higher labour costs would simply offshore production rather than make investments.

‘This would be bad for labour in aggregate, as output and employment would disappear with no compensatory improvement in real wages,’ the report stated.

Deutsche Bank has argued that algorithms could be used to replace workers in customer service as well as administrative and secretarial roles

The warning comes as a leaked Home Office document revealed the free movement of labour will cease when the Brexit talks conclude in March 2019.

Businesses that are heavily reliant on EU workers face the very real prospect of contending with a waned pool of talent to fill vacancies in the post Brexit landscape.

The leaked document outlined proposals to crackdown on the number of lower-skilled EU migrants by offering them a maximum residency of two years, while those who are deemed as in high-skilled occupation would be granted permits to work for a longer period of three to five years.

But plans for immigration curbs have come under fire from employers, who have voiced concern at the potential impact on Britain's agriculture, hospitality and healthcare sectors - though Deutsche Bank's report suggests the implications could be broader.

‘Putting one and two together, the conclusion is that UK companies exposed to foreign competition have limited ability to raise wages in response to a labour supply shock,’ the report said.

‘Margins aren't high enough to absorb higher labour costs, and international competition will limit the ability to raise prices.’